In case anyone hasn't seen this article on Coastal Investment...

In case anyone hasn't seen this article on Coastal Investment Management and their PXUPA holding:

http://www.smh.com.au/business/coastal-adds-to-marchant-woes-20120607-1zyy4.html#ixzz1x7JIBNCI

AS IF PaperlinX chief Toby Marchant did not have enough worries, it appears the company's debt securities are going Coastal - that is, New York hedge fund Coastal Capital.

The fund, run by Vlad Artamonov and Todd Plutsky, has been aggressively accumulating PaperlinX's step-up preference securities (SPS), and as of the middle of this week had spent almost $3.5 million for an 8.24 per cent stake. That averages out to a purchase cost of $14.59 for the stock, which as of yesterday was trading at an ugly $8.95.

It is just possible that the fact that they have been in the market for the stock every day for a week is an attempt to average down - given that their largest purchase in early March was done at $15 a share, and they went as high as $18 back in January.

Coastal's limited track record in Australia is, though, not that of passive punter. It bought into the ''deleveraging'' of Alinta Energy last year, a plan led by the utility owner's lenders (including private equity group TPG) designed to stop the group from collapsing under the weight of $2 billion in debt.

Coastal was against the deal, but lost the battle - and was forced to limit its voting power to 14.9 per cent because it failed to get Foreign Investment Review Board approval for its share buying.

Alinta investors all received a 10¢-a-share payout from the deal, which in Coastal Capital's case worked out to be pretty much the same as it had spent per share putting together its Alinta stake.

If that is right, it now has near-free interest in seeing if it can extract some extra value from the Alinta rump, listed as Redbank Energy, which has a single asset in the Redbank power station in the Hunter Valley in New South Wales.

The Coastal Capital duo are half of the Redbank board after teaming up last August with two other shareholders to depose the previous board and can their plan to delist the company.

Although Insider understands that neither Artamonov nor Plutsky have made it to Australian shores for a Redbank board meeting yet, they have participated in Redbank's ongoing negotiations with lenders for more time to repay the debt.

So, Coastal Capital has not been monumentally successful in the Alinta/Redbank gambit, but it clearly knows how to use power.

In the PaperlinX case, holders of its $285 million SPS have no direct leverage over the listed company - except in special circumstances - because they are not actually issued by PaperlinX, nor do they have any claim on its assets. At the end of this month, though, there was supposed to be what is known as the first remarketing date for the SPS, when the ''step-up'' part of their name comes into effect and owners could opt to choose a change in the interest rate margin on their stock.

From what Insider can tell, however, there has been no invitation to investors - it was supposed to be sent out no later than 55 days before June 30 - which seems to indicate that PaperlinX is happy to let the ''step-up'' happen automatically.

Technically that means another 2.25 percentage points of interest on top of the holders' existing dividend distribution. The fly in that ointment is that PaperlinX has not paid a distribution on the SPDS since last year - and cannot pay one under its European banking arrangements.

Insider does not for a moment believe the Coastal Capital fund would spend so much money mopping up the SPS, with no income and certainly no capital gain, without a game plan.

The SPS have a face value of $100 each - and Coastal Capital now have about 235,000 of them, or a potential $23.5 million if they can force a redemption.

Toby Marchant may have a few things more to think about other than retrenching more staff and moving from his Milton Keynes office in Britain to the other side of the M1 in Northampton.